Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Longstanding presence, extensive industry experience of the promoters and established clientele: The company ventured into the renewable energy industry in 2005 by first diversifying into wind power generation as an independent power producer. It then began manufacturing solar photovoltaic (PV) panels. Since then, ASL has established itself as the most reputable and reliable manufacturer of solar PV panels. Also, the promoters’ experience of over 16 years in the industry has given them a strong understanding of the market dynamics and enabled them to establish healthy relationships with suppliers and customers. Clientele is strong and includes Luminous Power Technologies Pvt Ltd, Premier Energies Ltd, NTPC Ltd, Tata Power Solar Systems Ltd, Hindustan Aeronautics Ltd and the governments of Rajasthan, Punjab, Haryana and Himachal Pradesh. Further, the company is also carrying out a sizable debt-funded capital expenditure on doubling the solar module manufacturing capacity as well as setting up units for backward integration for manufacturing solar cells, solar panels and junction boxes. This will further improve the company’s market position resulting in better revenue visibility and improved operating margins. However, timely completion of this capex will remain monitorable.

Comfortable financial risk profile: ASL’s capital structure has been comfortable because of moderate reliance on external funds with gearing and total outside liabilities to adjusted networth (TOLANW) ratio expected at 0.7-0.8 time and 1.1-1.2 times, respectively, as on March 31, 2025. Though the company is carrying out a sizable debt funded capex in fiscals 2025 and 2026, the capital structure is expected to remain comfortable supported by increasing networth. ASL’s debt protection metrics have also been healthy due to low leverage and healthy profitability. The interest coverage and net cash accrual to total debt (NCATD) ratios are expected at 7-7.5 times and 0.4-0.45 time in fiscal 2025. These metrics are expected to decline in fiscal 2026 on account of sizable debt-funded capex being undertaken by the company for capacity expansion, however, despite this, the overall financial risk profile is expected to remain comfortable.

Improving scale of operations: Revenue has consistently improved over the years because of the company’s established market position and favourable demand outlook for the solar industry, with estimated compound annual growth rate (CAGR) of 55-60% over the three fiscals through 2025.Operating income was Rs 404 crore in fiscal 2024 and is expected to increase to over Rs 600-650 crore in fiscal 2025 (Rs 265 crore recorded in the first half of the fiscal) on the back of orders from both government and private sector counterparties (including an order of Rs 525 crore for supply of solar panels), leading to better volumes and improved realisation. The revenue is expected to show sustained growth in fiscal 2026 as well, backed by efficient utilisation of existing capacities as well as partial commercialisation of the new capacities. Steady demand in the solar industry and improved order flow are expected to further support growth in operating income over the medium term.

Weaknesses:

Exposure to debt-funded capex and its timely commercialisation: The company is undertaking a sizable debt-funded capex of Rs. 332 crores which will be funded by debt to the extent of Rs. 200 crores, equity infusion of Rs. 60-65 crores and rest through internal accruals and is expected to be completed by second half of fiscal 2026. While the company has received the sanction for debt, the equity is yet to be received. Furthermore, the capacity expansion will cater to the increasing demand for solar panels and modules in the market driven by government’s boost towards promoting the renewable sources of energy. The increased capacities will support the ramp up in operations over the medium term, while backward integration shall aid operating margin and boost efficiency with in-house production. However, the timely completion of this sizable debt-funded capex without any cost overruns remains a key monitorable.

Moderate operating profitability: The operating profitability of the company was low at 2.46% in fiscal 2022 which improved to 6.06% in fiscal 2023 and further to 9.07% in fiscal 2024. The same has been on account of increased utilisation of existing capacities leading to better efficiency. Though the margins have shown an improvement trajectory and have further improved to 13.98% in the first half of fiscal 2025, however, there is limited track record of stability of such operating margins. Furthermore, these are susceptible to intense competition in industry, regulatory changes as well as volatility in the raw material prices. Though the margins are expected in the range of 11-12% in fiscal 2025 and 2026 on account of efficient capacity utilisation and benefits of backward integration, however, any major impact on the margins amid the sizable debt-funded capex will remain a key monitorable.